High-Low or Low-High: Product Line Introduction Strategies

This paper presents a model of the introduction of a product line that consists of a high- end model and a low-end model under conditions of demand uncertainty. The firm is uncertain a priori about demand for the product line, which can turn out to be either high or low. The firm learns the actual demand conditions only after at least one product in the line has been introduced. We start with analyzing sequential introduction strategies and find under low levels of demand uncertainty that the firm first introduces the high-end model and then follows with introduction of the low-end model. When the level of demand uncertainty is intermediate and demand turns out to be high, the firm should follow introduction of the first product with introduction of a higher-end model; if demand turns out to be low, the firm should follow introduction of the first product with introduction of a lower-end model or replace the first product with a lower-end model. When the level of demand uncertainty is high, the firm should first introduce the high-end model. Then, if demand turns out to be high, a low-end model should be added to the product line. But if demand turns out to be low, the firm should replace the first product with a new one. We then analyze a simultaneous introduction strategy and find that even when it is possible to introduce both products simultaneously the firm should do so only when the level of demand uncertainty is low.